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Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

1

CHAPTER 12

12
-
1

Financial Planning

12
-
2

Financial Records and Financial
Statements

12
-
3

Payroll Management

12
-
4

Financial Decision
-
Making


Financial Management

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

2

Financial Planning

Goals


Recognize important financial questions that
must be answered in a business.


List the steps in budget preparation.


Describe three types of business budgets.

12
-
1

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

3

Key Terms


revenue


expenses


budget


start
-
up budget


operating budget


cash budget

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

4

FINANCIAL PLANNING


Beginning a business


Ongoing operations


Business expansion

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

5

BASIC FINANCIAL EQUATION

Revenue


Expenses
=

Profit or Loss

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

6

Checkpoint >>

What is the basic financial equation for businesses?

Answer


The basic financial equation for businesses is revenue
minus expenses equals profit or loss.

Revenue


Expenses
=

Profit or Loss

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

7

DEVELOPING BUSINESS
BUDGETS


Sources of budget information


Budget preparation

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

8

Checkpoint >>

What are the four steps in preparing a business budget?

Answer


Preparing a list of each type of income and expense that will be a
part of the budget


Gathering accurate information from business records and other
information sources for each type of income and expense


Creating the budget by calculating each type of income, expense,
and the amount of net income or loss


Explaining the budget to people who need financial information

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

9

TYPES OF BUDGETS


Start
-
up budget


Operating budget


Cash budget


Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

10

Checkpoint >>

Identify and describe the three types of budgets needed
by all businesses.

Answer


Start
-
up budget


plans income and expenses from
the beginning of a new business or a major business
expansion until it becomes profitable


Operating budget


describes the plan for ongoing
operations for a specific period


Cash budget


is an estimate of the actual money
received and paid out for a specific period.

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

11

Financial Records and
Financial Statements

Goals


Identify several types of financial records
needed by businesses.


Describe the differences between an income
statement and a balance sheet.

12
-
2

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

12

Key Terms


financial records


assets


liabilities


owner’s equity


balance sheet


income statement

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

13

FINANCIAL RECORDS


Types of records


Asset records


Depreciation records


Inventory records


Records of accounts


Cash records


Payroll records


Tax records


Maintaining financial records

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

14

Checkpoint >>

How has the process of maintaining financial records been affected
by technology?

Answer


Most financial information is collected using point
-
of
-
production
and point
-
of
-
sale technology and sent electronically to the people
who prepare the financial records.


Also, businesses use computerized financial systems that
complete the necessary mathematical calculations and compare
those records with budgets.


The software can even complete what
-
if comparisons to help
managers determine the impact of changes in budgets and
financial performance.

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

15

FINANCIAL STATEMENTS


The balance sheet


The income statement

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

16

Balance Sheet

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

17

Income Statement

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

18

Checkpoint >>

What is the difference between a balance sheet and an
income statement?

Answer


A balance sheet reports assets, liabilities, and owner’s
equity as of a specific date.


An income statement reports sales, expenses, and net
profit or loss for a specified time period.

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

19

Payroll Management

Goals


Describe the components of a business’
payroll system.


Identify information included in payroll records
and paychecks.

12
-
3

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

20

Key Terms


payroll


payroll record


direct deposit

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

21

PAYROLL SYSTEMS


Income taxes


Social Security and Medicare


Unemployment taxes

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

22

Checkpoint >>

What is the purpose of the payroll system?

Answer



The purpose of the payroll system is to maintain
information on each employee to be able to calculate
the company’s payroll and make the necessary
payments to each employee, taking the proper legal
state and federal deductions from each paycheck.

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

23

PREPARING A PAYROLL


Payroll records


Preparing paychecks

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

24

Paycheck and Earnings Report

Sample Paycheck

Sample
Earnings Report

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

25

Checkpoint >>

What is the difference between a payroll record and an
earnings report?

Answer


A payroll record is the form used to track each
employee’s pay history.


An earnings report is included with the employee’s
paycheck and contains information for the current pay
period as well as the cumulative amounts for the year.

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

26

Financial Decision
-
Making

Goals


Recognize important financial information
managers use to make decisions.


Identify the steps in making financial decisions
in business.

12
-
4

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

27

Key Terms


financial performance ratios


discrepancies

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

28

USING FINANCIAL
INFORMATION


Important financial information


Understanding financial performance
ratios


Current ratio


Debt to equity ratio


Return on equity ratio


Net income ratio

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

29

Financial
Performance

Ratios

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

30

Checkpoint >>

Identify four important financial performance ratios used
by managers to determine how well the business is
performing.

Answer


current ratio


debt to equity ratio


return on equity ratio


net income ratio


Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

31

MAKING FINANCIAL
DECISIONS


Prepare a budget


Look for discrepancies between actual
and budgeted performance


Make needed adjustments

Intro to Business, 7e

© 2009 South
-
Western, Cengage Learning

SLIDE

Chapter 12

32

Checkpoint >>

List the three steps in financial decision
-
making.

Answer

1.
Preparing a budget.

2.
Using the budget as a guide to the operations of
the business.

3.
Making needed adjustments to bring performance
in line with the budget.